A Christmas-Comes-Early Portfolio

An example is the 14.3% plunge in the Dow Jones Industrial Average following the Sept. 11, 2001, attacks in New York and Washington. But investors typically go overboard in these selloffs. Twenty-two days later, the median advance from the end of the flash point is 4%, followed by advances of 5.6%, 9.2% and 16.9% in the three-month, six-month and one-year aftermath periods, respectively.

The current flash point for measurement purposes is July 11 to July 18, which comprises the terrorist train bombing in India and Israel's massive air attack on Lebanon in response to Hezbollah kidnappings and rocket fire. The initial flash-point decline was 3%, and the advance so far from July 18 is 2%. If historical trends are a guide, then expect a return to Dow 11,770 by Christmas, which would be right around the high achieved in May.

According to MSN's Stock Scouter rating system, the best Dow Jones Industrials to buy now to take advantage of that forecast would be Citigroup(C Quote), Caterpillar(CAT Quote), Walt Disney(DIS Quote), Johnson & Johnson(JNJ Quote), JPMorgan Chase(JPM Quote), Altria(MO Quote), Merck(MRK Quote) and Exxon Mobil(XOM Quote).

Among Dow Jones Transportation Average Index stocks, the top-rated are railroads CSX(CSX Quote) and Norfolk Southern(NSC Quote), and package deliverer United Parcel Service(UPS Quote).

Fed Relief

As for the possibility that it will turn out that Federal Reserve fears are overdone, the stocks with the best potential are ones that are, naturally, the most interest rate sensitive. Most prominent among these are banks and homebuilders.

Since we've got a couple of banks already in the Dow group, for your Christmas Gift Portfolio, I suggest you turn your attention to the ravaged builders. I know all about the many reasons you would want to run in the opposite direction of this most-hated group, but historically, the best time to buy these companies is when they're trading at book value.